All About Tax Identity Theft & How to Prevent It

10 May 2024
All About Tax Identity Theft & How to Prevent It

One of the most problematic issues in the modern digital age is identity theft. According to a U.S. Bureau of Justice Statistics’ October 2023 report, in 2021, approximately 24 million people were identity theft victims during the prior 12 months. Losses totaled an incredulous $16.4 billion.

Identity theft can occur in many ways, and tax identity theft is growing to become a persistent problem. In 2023, the IRS’ Identity Theft Victim Assistance program had 294,138 individual case receipts during fiscal 2023. This is up from 92,631 in 2019. Furthermore, more than 1 million tax returns were flagged in 2023 as being filed by potential identity thieves.

While no one is immune to any kind of identity theft, including tax identity theft, you can be proactive to protect yourself. By learning exactly what tax identity theft is, finding out how can tax identity theft occurs, seeing how to identify IRS scammers, and learning what steps you can take, you can reduce your chances of becoming a victim.

What is Tax Identity Theft?

Tax identity theft is when someone uses another person’s Social Security number to file a fraudulent tax return or to claim tax benefits. They illicitly obtain personal information and then use a false address or post office box so they can steal tax refund checks. Scammers obtain SSNs in several ways:

● Purchase information from criminal sources

● Email phishing

● Phone and texting scams

● Stolen wallet or purse

● Dumpster diving

● Mailbox theft

●     Phishing by posing as employers, government agencies, or other authorities and asking questions

Unfortunately, legitimate taxpayers usually don’t immediately know tax fraud has been committed against them. Typically, tax identity theft is detected when someone tries to submit their own return and receives a notice from the IRS or state tax agency that a return has already been filed with their Social Security number.

Other ways you might learn your identity was stolen are:

● Receiving unrequested tax transcripts

● IRS sends a notice an online account was created with your name

● Notice from the IRS your existing account was accessed or disabled (and you didn’t take these actions)

● IRS records show you earned income from an employer you never worked for●     You were assigned an Employer Identification Number (EIN) that you didn’t request

Preventing Tax Identity Theft

To decrease the chances of becoming a victim of tax identity theft, you can take preventative steps to safeguard your Social Security number and other sensitive personal identifiable information (PII). Protecting your PII is an important part of preventing tax identity theft. Here are specific steps you can take.

● Memorize your SSN, and don’t carry it around with you

● File taxes as soon as possible

● Always use a secure internet connection when filing taxes online

● Create strong passwords and don’t reuse them for different purposes

● Use security software with a firewall

● Consistently monitor your credit reports and score

● Shred documents with PII where possible; don’t simply discard

● Encrypt documents and files containing your PII

● Use multi-factor authentication if you use tax preparation software to file taxes

● Never give your SSN or other PII to anyone calling, emailing, or texting you saying they’re from the IRS

● Never give someone claiming to be the IRS any payments over the phone or online; they’ll never ask this way

●     If you hire a professional tax specialist to do your tax return, make sure they are legitimate and have the right licenses, certifications, etc.

Essentially, treat your PII like cash – never leave it lying around for someone to steal – and familiarize yourself with the common ways identity thieves trick people into giving up PII and Social Security numbers through phishing and other approaches.

How to Identify a Potential Identity Scammer

Identity theft scammers are pretty skilled at what they do, and they are always “upping” their proverbial game and are getting trickier and trickier as time progresses. They tend to work hard to stay one step ahead of everyone, so they can steal PII for illicit gain.

How to identify potential identity thieves

Unfortunately, there are many lucrative opportunities in identity theft. With that being said, it’s important to always be on guard for a potential identity thief and learn how to spot red flags.

You can start by learning the warning signs of phishing either by phone, email, text, social media, or even in person. Scammers will go the extra mile to trick people into giving up the information they seek. Some scammers may come to your home or workplace and pretend to be a legitimate entity to get information. Always verify before providing any personal information. A legitimate entity will rarely approach a situation this way.

Other scammers may lurk around mailboxes during delivery hours or go through garbage. They may even pretend to be an official or other authoritative figure. Some scammers may pose as salespersons to get you to invite them in, so they can “case” your residence or see where your computers, laptops, and other technology are kept. If you see unusual types of behavior, always report it or verify their agency by calling to check.

Remember, scammers almost always behave with urgency and pressure. They want you not to have time to think about what is being asked or why they’re taking the actions they are engaging in. To achieve the exploitation of the victims they seek, they’ll use strategies to invoke fear to get them to take action and give them the valuable PII.

Signs your identity may be stolen (can lead to tax fraud)

If any of the following events occur, consider them to be a red flag and a sign for you to take action to investigate the situation. Not only can this hurt your credit or drain your bank accounts, but tax fraud may be next on the scammer’s list.

● Strange or unrecognized credit card charges, especially small charges (these are often a “test”, scammers try to make sure they aren’t detected)

● New credit cards or loans appearing on your credit report

● Hard inquiries appear on your credit report (when you aren’t applying for credit)

● Your credit score suddenly plummets

● Unfamiliar transactions on your bank statement

● Your checks bounce, or online bill pays do not go through when you know you have sufficient funds

● You are unexpectedly denied credit cards or loans when you have a good credit score

● You begin receiving calls from debt collectors

● Calls begin arriving to verify purchases you didn’t make (beware of phishing scams – legitimate creditors and companies are only looking for yes/no answers, while scammers will phish for more details)

● Your credit card company sends alerts about large purchases you didn’t make

● Unfamiliar medical bills begin arriving

● You’re locked out of your bank and other accounts

●     Expected mail goes missing (e.g., bank statements or credit card bills)

If any of the above occurs, you should take steps to get to the root of the problem before the identity theft gets out of control.

What to Do If Someone Files Fraudulent Taxes In Your Name

Finding out someone fraudulently filed a tax return in your name is both frightening and frustrating. However, it’s important to take action right away. If you find someone has committed fraud against you, take the following actions.

● File IRS Form 14039 to alert the federal agency about someone using your identification to file a tax return

● Assemble documentation you’ll need to include with IRS Form 14039 (copies of Social Security card, driver’s license, or other acceptable ID)

● Place a freeze on your credit report with all three major reporting agencies (TransUnion, Equifax, and Experian)

● File an identity theft report with your local police department

●     Report the theft online to the Federal Trade Commission’s designated website

Remember, the IRS will not call or email you to report inconsistencies in your tax return or fraudulent use, they will only send via USPS mail.

Apply for an EIN To Protect Your Personal Identity

If you own a small or home business and are the only employee, you theoretically don’t need an EIN. However, it’s to your benefit to get one. You probably work with vendors and other third parties to run your business, and freelancers work with many companies where they receive income.

This means multiple entities will be required to ask for your Social Security number for tax purposes or to report income. Obtaining an EIN is a safer way to do business. This way, you can keep your SSN private and provide entities with your tax ID instead. Here are the steps to apply.

● Check your eligibility for an EIN

● Assemble necessary information, including your legal business name, DBA (“doing business as”) designation, date business commenced, and business address

● Note the business entity type (e.g., LLC or sole proprietor)

● List the person responsible for the company, along with their SSN or ITIN

● Select the reason why you’re applying for an EIN

● Share an estimated number of employees who work for you or plan to hire

●     Submit your EIN application and wait for a response


Unfortunately, identity theft is never 100% preventable, and it happens more often than you think. All types of identity theft are on the rise, but by taking proactive steps, you can reduce the chances of it happening to you. If it does happen, when you act quickly, you may be able to limit the damage inflicted.